Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
So if you’re like me, you might be more interested in profitable, growing companies, like Ames National (NASDAQ:ATLO). Now, I’m not saying that the stock is necessarily undervalued today; but I can’t shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
Ames National’s Earnings Per Share Are Growing.
If you believe that markets are even vaguely efficient, then over the long term you’d expect a company’s share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. We can see that in the last three years Ames National grew its EPS by 4.4% per year. While that sort of growth rate isn’t amazing, it does show the business is growing.
One way to double-check a company’s growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. I note that Ames National’s revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. While we note Ames National’s EBIT margins were flat over the last year, revenue grew by a solid 6.8% to US$50m. That’s a real positive.
You can take a look at the company’s revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
Since Ames National is no giant, with a market capitalization of US$247m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Ames National Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don’t always get it right.
We note that Ames National insiders spent US$159k on stock, over the last year; in contrast, we didn’t see any selling. That puts the company in a nice light, as it makes me think its leaders are feeling confident. It is also worth noting that it was Director James Larson who made the biggest single purchase, worth US$41k, paying US$28.00 per share.
I do like that insiders have been buying shares in Ames National, but there is more evidence of shareholder friendly management. I refer to the very reasonable level of CEO pay. I discovered that the median total compensation for the CEOs of companies like Ames National with market caps between US$100m and US$400m is about US$985k.
The Ames National CEO received total compensation of just US$418k in the year to December 2018. That’s clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.
Does Ames National Deserve A Spot On Your Watchlist?
One important encouraging feature of Ames National is that it is growing profits. And that’s not all, folks. We’ve also seen insiders buying stock, and noted modest executive pay. If that doesn’t automatically earn it a spot on your watchlist then I’d posit it warrants a closer look at the very least. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Ames National.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Ames National, you’ll probably love this free list of growing companies that insiders are buying.Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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